Raises and Bonuses: The PR Fraud

Republicans and corporations tried to convince Americans that their employees would be rewarded. But only 4 percent of workers have gotten bonuses or raises.

Mike Theiler/AP Images

Rocket Man: President Trump, pictured here signing the GOP tax bill, claimed the act would be "rocket fuel for the economy." It wasn't.

This article appears in the Summer 2018 issue of The American Prospect magazine. Subscribe here.

Thirty seconds into the president’s remarks at a South Lawn White House event last December celebrating congressional passage of the Republican Tax Act—with virtually the entire Republican caucus standing behind him—Donald Trump held up a piece of paper.

“This just came out—two minutes ago—they handed it to me.” He reported AT&T was making a capital investment of a billion dollars and giving 200,000 employees each a $1,000 bonus. Paul Ryan smiled over Trump’s left shoulder, Mike Pence over his right. “And that’s because of what we did. So that’s pretty good. That’s pretty good.”

It was more than pretty good. As public relations, it was brilliant. Corporate America had begun rolling out a propaganda campaign aimed at transforming the image of the least-popular tax cut in history.

Soon other corporations had piled on. Comcast said that thanks to the tax bill (and the death of net neutrality) it would give its own $1,000 bonuses to 100,000 employees, plus make $50 billion in infrastructure investments over five years. Boeing declared it would invest $100 million in employee training, and another $100 million to upgrade facilities. Wells Fargo and Fifth Third banks announced they were each hiking their minimum wage to $15.

The media ate it up. “Major US companies say workers will see some of tax windfall,” ran an AP story the day of Trump’s announcement. “Companies are rushing to announce special bonuses and pay hikes after the GOPtax plan,” was the headline from Business Insidertwo days later. The happy news trailed into the new year. “Home Depot giving $1,000 bonuses to U.S. workers after Trump tax cut,” USA Today informed us in January.

Not surprisingly, right-wing media particularly warmed to the story. “Tax Cuts Spark Big Bonuses for Workers,” blared the headline from Christian Broadcasting Network that first week. The Washington Timesexplained the basic transaction (“Big business backs Trump tax cuts with bonus payouts”), while The Washington Free Beaconheralded that “3 Million Americans to Receive Bonuses Due to Tax Reform.”

And of course, no one was happier than Fox News. Type “corporate bonuses” into YouTube’s search engine and a bouquet of Fox clips blooms, with headlines like “Tax cuts lead to corporate bonuses, growth.” Fox also took the lead in attacking House Democratic Leader Nancy Pelosi when she, accurately but indelicately, called the worker payouts “crumbs.”

Americans for Tax Reform—founded to help pass Ronald Reagan’s tax reforms three decades ago by Grover Norquist, a man who never met a tax cut he didn’t like—began an exhaustive running tally of companies, regardless of size, promising tax-cut-related worker payouts.

Norquist’s group relied mainly on public announcements and media reports to maintain its list, but sometimes it had to do its own reporting: It was ATR that broke the news, for instance, that Anfinson Farm Store in Cushing, Iowa (population 223), was awarding its presumably modest staff $1,000 bonuses and 5 percent raises. (ATR offered no comparable list of corporations using their tax cuts to enrich wealthy shareholders through stock buybacks.)

Throughout the publicity blizzard, some news outlets retained perspective. “Bonuses Aside, Tax Law’s Trickle-Down Impact Not Yet Clear,” cautioned The New York Times, while The Washington Post noted, “Companies that tie announcements to tax bill earn goodwill with Trump” and added that “Economics may not be driving corporate generosity.”

Nonetheless, it was now out there in the political ether: Maybe, just maybe, the GOP and their big-money supporters had been right when they claimed corporate tax cuts help the little guy.

It proved to be a tough sell. Tax cuts are traditionally popular (who doesn’t like free money?), but opponents of this bill had done a good job letting people know it was the rich and corporations who gained from the new law, not working families—millions of whom would actually pay higher taxes once the law was fully phased in. The bill was so unpopular that for the first time in recent legislative history, not a single Democrat—not even conservative senators up for re-election in states Trump won—voted for a Republican tax cut.

Indeed, the very necessity of the corporate bonus propaganda campaign was itself a sign of the Tax Act’s toxicity. After 35 years of trickle-down, supply-side orthodoxy (only occasionally broken by lapses into more sensible policies), Americans were all too aware of the stagnant wages, widening economic inequality, and neglected public needs that resulted. They had understandably become weary, wary, and wise. Corporations knew that this time they would have to show them the money up front.

When the bill was on the verge of passage in December, Gallup found that only 29 percent of the American people supported it. By March, after the wave of corporate bonus publicity, that share had grown to 39 percent. Polling done for The New York Times found an even more dramatic improvement over a shorter period: Popular approval of 37 percent in December had grown to 51 percent by February. A Monmouth poll reflected an even bigger, 18 percentage-point jump in approval over that time.

Though effective at lifting the new tax law’s popularity, the burst of apparent corporate generosity wasn’t as spontaneous or altruistic as it may have seemed to innocent observers. Though as far as we know there was no explicit memo from the White House or the congressional Republican leadership detailing which companies should be giving out how much in bonuses and when (“OK, Comcast, you’re up: Issue that $1,000 bonus announcement tomorrow!”), still there were forces behind the bonus bonanza more powerful than corporate kindness.

For instance, the AT&T announcement that began the whole trend came after the union representing company employees—the Communications Workers of America (CWA)—had demanded the company and half a dozen others fulfill the rosy scenario predicted by the administration if its corporate tax giveaway passed.

Trump’s top economic adviser, Kevin Hassett, had issued a bold prediction in October that cutting the corporate tax rate by 40 percent would result in at least a $4,000 raise for every worker. Trump himself began pushing that enticing idea as he campaigned for the tax bill. While most economists rejected the prediction as fantasy, theCWAdecided to call the administration’s bluff. It formally requested eight companies where it has members to sign contracts guaranteeing a $4,000 pay boost if the corporate tax cut passed.

AT&T never signed the $4,000 pledge, but the union says just asking for it prompted the smaller bonus.

Pressure, if not detailed instruction, also came from the administration. A communications consultant who participated in meetings of a corporate coalition pushing for tax cuts recalled that “in the weeks leading up to the bill’s passage,” the White House “was pushing for as many announcements as possible” of company plans to increase investment or employee pay if the tax bill passed. “If we couldn’t do it before [the bill passed], as quickly as possible afterwards.”

The White House did not respond to a request for comment.

The only problem with the positive new perspective on the GOP tax law created by the flurry of bonus announcements is that it’s wrong. Pelosi was right. While anyone less wealthy than Trump and his cabinet would find an unexpected bonus of $1,000 a welcome surprise, the bonuses were—relatively speaking and in the proper context—crumbs. And they’re crumbs that few workers are actually receiving.

The only way to have figured this out was to cut through the hype and look at the numbers. Americans for Tax Fairness (ATF) did just that, creating a master database documenting bonuses, wage hikes, tax savings, stock buybacks, layoffs, and a half-dozen other indicators of the impact of the Tax Act on business fortunes and behavior. Unlike the simple lists of cheery corporate news collected by Americans for Tax Reform and several other tax-cut boosters, ATF’s presentation is an entire searchable website that makes it easy to compare who—among corporations, their shareholders, and their workers—is actually getting how much.

ATF has determined that as of mid-June, only 4 percent of workers have received any kind of tax-cut-related bonus or raise(and by dollar value, two-thirds are one-time bonuses and only one-third are ongoing wage increases). Belying the idea that workers were sharing deeply in the tax-cut bonanza, those payouts represented less than 10 percent of the companies’ savings from the new law. The biggest corrective of all to the feel-good bonus propaganda is that wealthy shareholders (including a healthy dollop of foreign investors) are projected to get 69 times as much from stock buybacks this year as American workers will get from bonuses or raises—$484 billion versus about $7 billion.

Apple, the world’s most valuable company, provided the starkest example of how the corporate tax-cut money is really being divvied up. After garnering lots of favorable publicity with its January announcement of $2,500 employee bonuses (which will cost the company about $300 million), Apple in May announced $100 billionin stock buybacks, worth more than 300 times what Apple paid its workers.

None of this should be surprising to anyone aware of the real purposes behind the corporate tax cut. Big companies had been lobbying for years to cut the corporate tax rate—which at 35 percent, as they never tired of noting, was the highest in the developed world. What they never mentioned was that very few firms actually paid that much: After exploiting all the special breaks in the tax code, companies on average often paid less than half the official rate.

In their Tax Act, Republicans decided to address the problem by making it worse. Instead of closing the loopholes that allowed so many companies to pay so little, the law largely left special breaks in place while chopping the corporate rate down to 21 percent. In consequence, corporations can now pay low taxes without having to work so hard at it.

The most immediate corporate giveaway was the huge tax discount granted the firms’ accumulated offshore profits. Under the old law, corporations owed taxes on all their worldwide profits every year, with a dollar-for-dollar credit for foreign taxes paid to avoid double taxation. But a loophole called “deferral” allowed companies to indefinitely delay paying what they owed on profits they booked and kept offshore.

It’s hard to imagine a greater encouragement for companies to shift as much profit overseas as possible, mostly to low- or no-tax havens. By the time the tax debate began, the corporate offshore profits pile had grown to $2.6 trillion, on which the companies owed more than $750 billion in unpaid U.S. taxes, according to the Institute on Taxation and Economic Policy and the U.S. PIRG Education Fund.

Rather than close the loophole and collect the money due, Republicans decided to reward corporations by declaring a partial tax amnesty on their offshore loot. With a stroke of Trump’s pen, the companies’ U.S. tax bill on their accumulated offshore earnings suddenly dropped to about $340 billion—a tax cut of over $400 billion.

It was in hopes of distracting the public from these outrageous realities of the corporate tax cuts that the feel-good announcements began.

THE FIRST PERSON many of the companies wanted to seduce with their supposed generosity was Donald Trump. Firms with business in front of the president used a time-tested strategy for gaining his good favor: saying what he wants to hear. The company that started it all, AT&T, was the clearest example, since it wanted to buy Time Warner in the face of administration hostility—an acquisition approved by a federal judge in mid-June. But it’s also true that Boeing wants to keep selling airplanes to the government, Wells Fargo would like to stop being held to such strict account for its misdeeds, and no CEOwants to feel Trump’s Twitter lash.

Beyond this initial audience of one lay the harder-to-convince American people. And despite the vigor of the corporate public relations campaign meant to woo them, it wasn’t difficult to see it was all an act.

One tip-off was the timing. The rush to distribute bonuses at the end of the year was timed so corporations could write them off at the old, higher tax rate: Employee expenses incurred in 2017 and even into early 2018 could still be deducted against a 35 percent tax rate, more valuable than the 21 percent deduction available under the new law. (Fiscal-year filers could exploit this same tax arbitrage even later in the year, but the advantage wanes the deeper you get into 2018.)

That diminishing tax advantage is one reason the seeming flood of announcements over the winter slowed to a trickle by the spring.

Another signal that we had not in fact reached a new era of broadly shared prosperity was that the vast majority of payouts were one-time bonuses, not permanent wage hikes. More than twice as many workers are getting bonuses as are getting raises. It’s far easier for corporations to withhold future bonuses than to cut their workers’ wages.

The bonus announcements were sometimes accompanied (as in AT&T’s case) by promised new investments. But closer examination of these purported plans to plow tax-cut savings back into the American economy reveal little meat and plenty of stuffing.

Commentators—including President Trump in his first State of the Union speech—celebrated Apple’s claim that it would invest $350 billion in the American economy over five years. But that headline figure was inflated by the company’s (discounted) tax payment on its offshore profits—which is a legal obligation, not an optional investment—along with such everyday expenses as supply purchases.

Similarly, ExxonMobil’s ballyhooed announcement that it would be investing $50 billion in the United States over the next five years in the wake of the new tax law lost some of its luster when it was pointed out that an average of $10 billion a year had been its domestic-investment budget for years, long before the big corporate tax cut supposedly loosened its purse strings.

As for actual raises, most of the relatively few companies that did increase pay applied the hike only to their entry-level minimum wage, which they frequently lifted to $15. But since many states and other jurisdictions are already moving toward a $15 minimum wage, the companies’ supposed acts of beneficence could just as easily be viewed as anticipating and standardizing a new legal requirement. Besides, unemployment is near record lows: Companies have to offer more money to attract scarce workers.

Some companies have boosted their pension-funds contributions. That sounds good, especially since there are so many underfunded plans out there. But the reality is that it’s companies that benefit most immediately from better funding for their pension plans: It’s another big deduction, at the old, higher tax rate. It’s also a wise investment to pay up because of the steep underfunding penalties the companies would otherwise face, not to mention that only fully funded pensions can be abandoned altogether, a move that pleases stockholders while leaving retirees in the lurch.

And even if you believe that corporate tax cuts do help workers, these recent payouts cannot possibly demonstrate that—because they’ve come too soon. The process by which corporate tax cuts are supposed to boost wages involves multiple steps (increased profits leads to more investment which leads to better productivity which leads to higher wages) that play out over a long period of time. Instant bonuses are not part of the theory.

EVENTUALLY, REALITY began to eclipse appearance. As the winter wore on, media coverage grew more skeptical. CNN Money reported on a survey from Morgan Stanley that found “Only 13% of companies’ tax cuts are going to workers.” MarketWatch published an opinion piece that announced, “Now we know where the tax cut is going: Share buybacks.” This very magazine explored the surprising fact that passage of a law with “jobs” right in its name had been followed at many companies by layoffs.

By mid-April, Gallup found disapproval of the Tax Act had risen to 52 percent. The approval level (39 percent) hadn’t changed much, but there were half as many undecided as in the December poll, meaning Americans were picking sides and most of them were lining up against the GOP law.

Another indicator that the tax law was losing public support was its failure as an electoral issue. Congressional Republicans had planned to make the tax cuts the highlight of their fall campaigns. But when the GOP’s internal polling showed it wasn’t swaying voters in a special House election in Pennsylvania this spring, they changed the subject (and still lost). Even the Koch brothers have been reduced to sending tax-cut evangelists door to door in the hopes of opening the public’s hardening heart to the glories of the new tax law.

In an exquisite political irony, some commentators have surmised that Republicans are having a hard time selling the public on their tax cut because the GOP has conditioned the electorate over decades to view with beady-eyed suspicion anything coming out of Washington—even ostensibly lower tax bills. Or maybe working families are just doing the math and beginning to see the links between wealthy tax cuts and the GOPplans to slash Medicare, Medicaid, and other vital public services. Whatever the reason, and after much early promise, the Great Corporate Tax Cut Worker Bonus PR Campaign of 2018 seems to have ultimately, thankfully failed.

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Like most of Donald Trump’s policy agenda (and the rest of his career and life), the GOP tax cut has been sold on bluster, exaggeration, and outright lies. Here are ten of the biggest myths associated with the 2017 Republican Tax Act.

About the Author

William Rice is a freelance writer and communications consultant for Americans for Tax Fairness.